Tag: brand

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#unfiltered #73 The Risks and Opportunities Created By Compelling Narratives

“If you look at all big human achievements, like flying to the moon, for instance, it’s all based on large scale cooperation. How did humans get to the moon? It wasn’t Neil Armstrong flying there by himself. There were millions of people cooperating to build the spaceship, to do the math, to provide the food, to provide the special clothing, and the funding.

“The big question becomes: why are we capable of cooperating on such a large scale when chimpanzees or elephants or pigs can’t?

“It’s the ability to invent and believe fictional stories.”

Yuval Noah Harari is right. He shared the above thoughts in a Startalk episode that came out yesterday.

For any big achievement, and I’m specifically reminded of the recent news with FTX — for FTX to get as large as it did at its peak — it was a monumental achievement. It was the work of many, rather than a single individual. It was the result of many buying into this narrative that Sam Bankman-Fried shared. That includes his team. His customers. His investors, from Sequoia to Tiger to Softbank to Coinbase. Many of whom are smart people who gave into the velocity of the market the last two years.

Source: Sequoia article on FTX
While I’m not sure how I feel about founders playing games during the meeting, I can’t deny the vision isn’t compelling.

To be fair, and this is not to condone the wrongdoings of the FTX team, every founder’s job is to distort reality. To put the human race on a fast track towards a future that is non-fiction to the founder, but fiction to everyone else. A world that isn’t false, but has yet to come. As author William Gibson once said, “The future is already here — it’s just not evenly distributed.”

I also love the thesis of Alexia‘s fund, Dream Machine. We make science fiction non-fiction.

Founders pitch their answer to: What will the world look like? Investors, customers, and talent then make bets with their time and money on which future they would like to see happen and the likelihood of it happening.

FTX is no exception. The fine line is when a founder does get creative, it is imperative for them to have a moral compass, which seems like SBF didn’t have. And of the million and one things they’ve done wrong (no board, giving loans using customer money, fraud, etc. and some more that are more questionable in nature, like political donations, etc. — none of which from what little I know are things I would ever endorse), I have to say they nailed their marketing and messaging. They got a lot of people excited about it fast. It’s easier to get people excited about the future of money than the future of fintech or the future of crypto.

As Jason Lemkin points out, they nailed their website.

The Super Bowl ad

The past week has been an insane week for crypto, namely when FTX filed for bankruptcy. And while there are many different angles to it, I took it upon myself to revisit a podcast episode from two months back where Nathaniel Whittemore, FTX’s former Head of Marketing, shared his marketing insights. Namely, around their 2021 Super Bowl ad.

A Super Bowl ad two years since its founding date. If nothing else, that’s impressive. Moreover, they got Larry David who has been known to never appear on ads to do it for them.

But what I found to be very powerful is Nathaniel breaks down why they chose to do a Super Bowl ad in the first place:

“People always focus on how much [an ad] costs. ‘This ad costs X.’ Which in a vacuum seems so high. […] What I think that analysis doesn’t take into consideration:

  1. “The number of people actually watching those ads. If you’re gonna get X people with an ad that costs a $100,000, but then, 50x that with an ad that costs $5 million, that’s the same ratio.
  2. “But the more important piece is that at least in America, the Super Bowl is the literal one moment each year that people not only are not annoyed with ads, but it is an active part of the experience that they’re having and they’re excited.”

He also does caveat that it doesn’t mean a Super Bowl is good for every kind of marketing campaign. But more so for brand-building, as opposed to product marketing or lead gen.

To echo that, David Sacks wrote a great piece on the importance of having an operating philosophy which I’ve referenced on this blog before. In it, he finds it incredibly powerful for companies to aggregate product updates and marketing campaigns in four big “lightning strikes” (each quarter) rather than have tidbits of information floating around every week.

Of course, companies like Twitch, Salesforce, Apple, and Google have taken it a step further by having a large launch event once a year. As Sacks mentions, “It’s not just about the external marketing value. There’s a huge internal benefit from setting dates and deadlines in order to hit a public launch.” It drives excitement and a narrative that both customers and future customers, as well as team members can get behind. The world is waiting. Your team is shooting to meet and beat expectations. And that’s incredibly motivating.

What does this mean for the crypto narrative?

A friend who took a hit from the recent series of events asked me at dinner last night, “What does this mean for crypto?”

Of which I think Yuval does a better job explaining it than I could. In the same podcast episode, he explains, “Not everybody believes in the same god or in any god. But everybody believes in money. And if you think about it, it’s strange because no other animal even knows that money exists. If you give a pig an apple in one hand and a pile of a million dollars in the other hand, the pig would obviously choose the apple. And the chimpanzee the same. And the elephant.

“Nobody, besides us, knows something like money exists in the world. The value of money doesn’t come from the paper. Most of the money in today’s world is not even paper; it’s just electronic data moving between computers. So where’s the value from? It’s from stories we believe.

“We are at risk of the whole thing collapsing. It happens from time to time in history. Inflation to some extent is that. The value of money is not what we were told it is. And inflation can sometimes hit thousands of persons and millions of persons. Eventually, the money becomes worthless.”

I don’t personally believe crypto will become worthless at any predictable point in the future. In fact, I think it has a great future ahead. Just a little early for its time from an infrastructure perspective. But, it is a non-zero possibility. That said, the more institutions, especially larger ones like FTX, that use crypto as the currency of faith, collapses, the more the faith behind the story of crypto will waver. And with repeated bad players, it is a race between mass adoption and the rate faith deteriorates.

For as long as the exchange currency is in dollars, crypto has still yet to be widely adopted. For instance, the value of crypto is pegged as a function of the dollar. As of the day I’m writing this on November 16th, 2022, if you type in bitcoin in Google search, the first search result is that Bitcoin is worth 16,768 US Dollars. In other words, as long as crypto is measured in dollars, the story of the dollar is stronger than that of crypto.

In closing

I’m not here to share my latest scoop or an update on the current situation about FTX. Twitter is filled with these already. Plenty of smart individuals have already covered all the ground I would ever even think about covering. I don’t keep my finger on the pulse of crypto and FTX nearly as much as my friends and colleagues.

Really, the purpose of this blogpost is really my curiosity that in order for FTX to get the notoriety that it has today, the team must have done something really well. And in my eyes, it’s not the product or the business, but the narrative in which they built. So, if someone at HBS or GSB isn’t writing a case study on this, they should.

P.S. Had to pass this to two friends at 6AM this morning to see if this blogpost was even worth publishing. Bless their hearts for their support so early in the morning.

Cover photo by Dollar Gill on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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How to Build Your Investor Pipeline Without a Network

One of the most common questions I get from first-time founders, as well as those outside the Bay Area, is: “Who is/How do I find the best investor for our startup?” Often underscored by circumstances of:

  • Raising their first round of funding
  • Finding the best angel investors
  • Doesn’t have a network in the Bay Area or with investors

While I try to be as helpful as I can in providing names and introductions, more often than not, I don’t know. I usually don’t know who’s the best final denominator, but I do know where and how to start. In other words, how to build a network, when you don’t think you have one. I emphasize “think” because the world is so connected these days. And you’re at most a 2nd or 3rd degree connection from anyone you might wanna meet. Plus, so many early-stage investors spend time on brand-building via Medium, Quora, Twitter, Substack, podcasting, blogging, and maybe even YouTube. It’s not hard to do a quick Google search to find them.

“Googling” efficiency

While I do recommend starting your research independently first, if you really are stumped, DM me on my socials or drop me a line via this blog. Of course, this is not a blog post to tell you to just “Google it”. After all, that would be me being insensitive. Here’s how I’d start.

One of the greatest tools I picked up from my high school debate days was learning to use Google search operators. Like:

  • “[word]” – Quotes around a word or words enforces that keyword, meaning it has to exist in the search items
  • site: – Limits your search query to results with this domain
  • intitle: – Webpages with that keyword in its title
  • inurl: – URLs containing that keyword

Say you’re looking for investors. I would start with a search query of:

site: docs.google.com/spreadsheets intitle: investors

Or:

site: airtable.com inurl: investors

Feel free to refine the above searches to “angel investors” or “pre-seed funds”.

Landing and expanding your investor/advisor network

I was chatting with a friend, first-time founder, recently who’s gearing up for her fundraising frenzy leading up to Demo Day. She asked me, “Who should I be talking to?” While I could only name a few names since I wasn’t super familiar with the fashion industry, I thought my “subject-matter expert network expansion” system would be more useful. SMENE. Yes, I made that name up on the spot. If you have a better nomination, please do let me know. But I digress.

First, while you might not think you have the network you want, leverage who you know to get a beachhead into the SMEN (SME network) you want. Yes I also made up that acronym just now. But don’t just ask anyone, ask your friends who are founders, relative experts/enthusiasts, and investors. Ideally with experience/knowledge in the same/similar vertical or business model.

Second, if you feel like you don’t have those, just reach out to people who are founders, relative experts/enthusiasts, and investors. Via Twitter, Quora, LinkedIn, Clubhouse. Or maybe something more esoteric. I know Li Jin and Justin Kan are on TikTok and Garry Tan and Allie Miller are on Instagram. You’d be surprised at how far a cold email/message go. If it helps, here’s my template for doing so.

Then you ask them three questions:

  1. Who is/would your dream investor be? And two names at most.
    • Or similarly, who is the first (or top 2) people they think of when I say [insert your industry/business model]?
  2. Who, of their existing investors, if they were to build a new business tomorrow in a similar sector, is the one person who would be a “no brainer” to bring back on their cap table?
  3. Who did they pitch to that turned them down for investment, but still was very helpful?

For each of the above questions, why two names at most? Two names because any more means people are scraping their minds for “leftovers”. And there’s a huge discrepancy between the A-players in their mind and the B-players. Then you reach out/get intro’ed to those people they suggested. Ask them the exact same question at the end of the conversation (whether they invest or not). And you do it over and over again, until you find the investor with the right fit.

Photo by Andrew Ly on Unsplash

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Should you take VC money or just money money?

Not too long ago, I came across a question on Quora that I had to double click on: Why should founders care about VC brand? Money is money, isn’t it? While the question itself seemed to have a come from a less-informed perspective, I found it to be a useful exercise to once again go through the checklist of founder-investor fit.

Money, frankly, is just money. A Benjamin will look the same and work the same as any other Benjamin out there. Assuming you don’t need anything else other than money, I’d recommend other sources of funding other than venture funding, i.e.:

  • (Equity) crowdfunding,
  • Rev share,
  • Angels – high net-worth individuals who write checks in the 1000s to 10s of 1000s of dollars;
    • Also worth looking into, but are representative of the VC model, are super angels and solo capitalists. Many of whom might be leading their own rolling funds (more context) now;
  • SBA Loans;
  • Friends/family – small sums of money, unless your dad is Chamath Palihapitiya;
  • ICO;
  • Government (public) and private grants – really small sums of money, but money nonetheless;
  • Accelerators/incubators – less upfront capital. But the partnerships they have with other startup services save you a lot of money (i.e. AWS, Adobe Suite, etc.);
  • Selling domain names (yes, I have a friend who initially funded his business by doing that, but other than that, I’m kidding);
  • And I’m sure I missed some others out there.

On the other hand, most founders who raise VC funding want something more than just monetary capital, including, but not limited to:

  • Mentorship/advisorship –
    • Ex-operators who can give you tactical advice,
    • Former founders who can empathize with you,
    • VCs who can check your blind side and had previous portfolio founders who have gone through what you’re going through now,
    • People who have access to resources that will aid you on the founding journey (ideally not distract you),
    • And frankly, people who’ll be there for you when you have to make the tough calls,
    • Highly recommend Harry Hurst’s tweet about the CS:H ratio (check size: helpfulness, which I elaborate on here) as a mental model to figure out which VCs depending on fund size/check size can help you the founder the most at the stage you’re at.
  • Network – downstream investors, sales pipeline, potential hires (eng, executives, growth, product, marketing, etc)
  • Brand/PR –
    • If you’re trying to fill up a round, a brand name investor can easily help you fill in the rest of the round with their network and their participation alone. They’ll also help you raise downstream capital – directly or indirectly.
    • It’ll be easier to find customers. With a brand name VC, you also get quite a bit of media attention from Forbes, TC, NY Times, and so on. Customers are more likely to trust you knowing that you’re backed by a recognizable brand, especially the folks on the other side of the chasm on the adoption curve.
    • It’ll be easier to hire world-class talent. Your business, in their mind, is less likely to go out of business tomorrow. And while you’re not looking for candidates who seek stability, it does give the candidates you do want to hire a peace of mind and confidence that you have external validation.

There’s a saying that the difference between a hallucination and a vision is that other people can see the latter. It’s really a chicken and egg problem. I’m not saying a VC’s brand will guarantee the success of your startup, but I do believe it will help, with the underlying assumption that you pick the right VC. Whereas it used to be a differentiator a decade ago, all VCs these days say they’re founder-first or founder-friendly. But unfortunately not all are. They might be if things are going well. But the true tells are what happens when things don’t go well. Here are some of my favorite questions to ask portfolio founders before you work with a VC. And how to find founder-investor fit.

Photo by Luca Bravo on Unsplash

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Brand as a Moat

startup brand, moat, defense, defensibility
Photo by Keith Johnston on Unsplash

What is the underlying notion that makes this product work?

It’s the question that almost every investor, especially early-stage startup investor, tries to answer when they’re entertaining potential investments. Some close cousins include:

  • What social, economic, or political trend is enabling this technology/business to work?
  • Why will people want to continue using this product? Consciously? Subconsciously? How much will they regret not being able to use this product?
  • Why is this idea crazy good, and not just crazy?
  • Is there a predictable road to traction? Product-market fit? $1M ARR? etc.
  • Is this a scalable business?

Needless to say, when I chat with founders, their business’s defensibility often comes up. Every business – small or large – needs to be defensible. Grandma’s cookies are just that good ’cause of that ‘secret’ brown butter element. Or Sally’s lemonade stand sells better than her neighbor’s down the street since she can keep her drinks cool for longer. Just like every good medieval castle has a moat, possibly filled with alligators, every good business has to have that one (or many) unfair advantage, as they call it in B-school. Not that I ever went, but I’ve heard from friends and professors who have. And this is even more true if you want to build a scalable business.

Those who have gone generally claim that their moat is their experience at X Fortune 500 company. Those who have a technical background often claim that their moat is their IP – patents owned and pending. Neither are wrong. And frankly, there are a multitude of factors that come into play when arguing for a business’s defensibility. And most of the times, it’s a permutation of the above and more. But the purpose of this post is to focus on an often discounted notion of brand as a moat. Both the company brand and the personal brand.

Disclaimer:

I should mention that before you even consider your business’s defensibility, and subsequently, brand, first, make a damn good product. I’ve seen too many founders take that leap of faith before they even have a product. They pitch the dream of them making a better world – the company vision – before they even figure out the first steps they need to take to get there.

The only ‘exception’ to this rule, at least from a fundraising and pre-PMF perspective, is if you have an amazingly robust personal brand. Though that may help with early traction, it won’t be enough to sustain a scalable business in the long run.

The startup brand

Your startup’s brand is a collective composed of the:

  • Company mission,
  • Company vision,
  • Internal culture,
  • And, the openness and responsiveness of the team.

The vision is that ultimate dream. The mission is what you’ll do now to get to that dream. Back in college, someone I really respect put it to me like this:

“The vision is the Sun. The mission is that ladder up. You can’t get to the Sun without building a ladder. If you only stare at it, you’ll eventually blind yourself. And if you just build a ladder, or else you might up on Mars instead, poorly equipped to survive there.”

Culture is something that you can set at the beginning, but know it’ll be an evolving beast with every new hire and every new incident. What you let happen defines the new culture. Although I share my thoughts in a post earlier this year, Ben Horowitz puts it into a much better perspective in his book, What You Do is Who You Are: How to Create your Business Culture. Quite a story-filled read, especially when you’re looking for something to do at home now.

And, the above three culminates into how your team acts.

  • Do your current customers/users feel like their concerns are either addressed or at least, valued?
  • Do they feel they are a valued member of your community?
  • What is your customer satisfaction rate? NPS score?
  • How do you prioritize and act on customer feedback?
  • Are your users engaged? How do you reengage them, if they become inactive?
  • For apps, what are they saying on the App Store/Play Store?
  • And, how are new customers hearing about your product? What do they hear? What are their explicit and implicit assumptions when using your product?

Why it Matters

Together the 4 elements answer the fundamental questions:

  1. Why would a potentially great customer want to use your product?
  2. Why would a potentially great hire want to join your company?

In the past few months, many VCs have been shifting their investment focus from consumer and towards enterprise/SaaS. There’s the argument that consumers are (1) more expensive to acquire (increasing CAC; the average number of apps a person downloads a day is zero), and (2) harder to retain. (For a more in-depth explanation, I would recommend you to check out the “Consumer App Conundrum” section here.) Aka, it’s more competitive than ever in the consumer markets. When we get closer to perfect competition over a saturated market seeking attention, having a great product just isn’t enough anymore. When some of the most active and vocal consumers happen to be people on the younger spectrum (millennials and Gen Zs), to fight for their attention, you need a brand that resonates with them on causes they care about – whether it’s diversity or climate change or another social cause.

We see this notion affecting two other verticals: the public sector and enterprise.

  • The privatization of X (let X be education, healthcare, transportation, etc. for all that were empirically public sector functions)
  • The consumerization of enterprise

For the purpose of this piece, let’s look at the consumerization of enterprise. What does that mean? Before enterprise sales worked from a top-down approach. A founder of an enterprise/SaaS startup pitches to a senior executive at a Fortune 500 (or similar) company. And the executive makes the call and the budget allocation towards their team’s usage of said product.

Now, many startups/companies, like Slack, Trello, Lever, and Soapbox, are taking the bottom-up approach, garnering brand loyalty among the people who will be/are using the product itself. And I predict that’ll be so in the near future for Superhuman, the fastest email client, and Woven, my favorite calendar app, as well. After all, progress happens at the most junior level. If you take it in relation to a tech startup of 200 in its growth phase, the founders or executives can make a plan and set deadlines. But if your most junior developer isn’t working on it, the whole business halts to a stop. All this makes me quite bullish on products in the low-code/no-code space, as well as in towards the future of work.

Moreover, this has led enterprise products to be heavily personalized, constantly updating, and has paved the way to multi-modal business models (i.e. subscription and pay-per-use). All this maximizes user satisfaction, which in turn affects their productivity, and transitively, the business flow.

Although the job market looks wildly different now than it did 3 months ago, when I assume the average founder is looking for cash preservation over growth, you still should be cognizant about the latter going forward.

Your Personal Brand

Your personal brand as a founder, or just as a professional, really matters. If you are a founder or thinking about becoming one, start building a public voice. Get people excited about you and what you’re all about.

Why?

Personal brands are extremely scalable and have built-in virality. You put one post out. Some percent of your followers engage with your content by liking or commenting. Then either by social media’s algorithms or by their innate excitement, they’ll share your content with their friends. Subsequently, new folks discover you and your content. And this becomes a virtuous loop, or network effects, as we call it, that helps get you scalable traction. This is why celebrities, like Dr. Dre and Maisie Williams, and their ventures garner quite a bit of traction among consumers and among investors. This is also why influencer marketing has been so bullish over the past few years.

At some point in your company’s lifespan, your personal brand will become the company brand. And that’ll become either shining beacon or the downfall of your company. More than just the followers you have on social media and in public, you are judged by everyone constantly on your aptitude and behaviors. How open, conscientious, agreeable, extroverted, and neurotic are you? (Yes, I took the 5 traits from the Big 5/OCEAN test.) Each and more have an impact on your personal brand. If we look at the culture behind Facebook, we see how large of an imprint Zuckerberg has on it. For Apple, Jobs.

In closing

The best thing about brands as a moat is that it’s effectively free! But both take years of work in building. As someone on the investing side, I love stellar brands. And it’s one of the elements of a business I weigh heavily on for its potentiality in network effects, summarized in the “Why you?” component of my NTY investment thesis (why Now, why This, why You).

Hmmmm, now thinking about it, personal brand may be the biggest reason I’ve been changing my handwashing habits in the past week… after watching Gordon Ramsay, Alton Brown, and Conan O’Brien‘s tutorials on it.

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